NEW YORK (TheDeal) -- Navistar International (NAV) - Get Report long stuck in the slow lane following a disastrous bet on new engine technology, is increasingly showing signs that the worst is behind it. And it is quite possible the truck maker won't remain independent long enough for management to complete the turnaround.
Lisle, Ill.-based Navistar on Tuesday reported a loss of $42 million in its fiscal first quarter, or 52 cents per share, a result that exceeded Wall Street expectations and came in far better than the $3.05 per share loss recorded in the same period a year prior. The company has now reported a positive adjusted Ebitda for four consecutive quarters.
Though comparisons to last year were easy targets, Navistar nevertheless showed improvements across the board. And warranty claims, which have in recent years been eating up a sizable portion of revenue thanks to the faulty engine design, have slowed, allowing the truck maker to lower its break-even point.
But for all of the good work done Navistar still has a long road to travel. The company's marketshare, at about 17% of the class 6/7 truck market according to Barclays, is below Navistar's full year target of 24% to 27%. Gains in share are essential if Navistar is to rebuild scale and restore profitability, but industry watchers say that a number of truckmakers are ramping up production and offering flexible deals on fleet sales in hopes of keeping their own markets intact.
Meanwhile the company's shares, trading at $28.58 on Thursday morning, are just $10 above multi-year lows and well below the near $70 price the company's stock fetched as recently as 2011. With year-over-year comparisons set to be more challenging in the quarters to come as the recovery matures, it isn't clear what the catalyst might be to spark the stock.
Add to the mix Navistar's large number of potentially impatient investors. Carl Icahn in December disclosed he has increased his stake in the company by nearly 2 million shares to 16.27 million, giving him 19.9% of the total. One-time Icahn protégé Mark Rachesky owned an additional 17.8% as of Dec. 31, and both activists have representatives on the company's board.
Icahn has pushed for Navistar to find a partner in the past, and attempted to arrange a combination between the truck maker and Oshkosh (OSK) - Get Report in 2011 before Navistar's engine troubles fully surfaced.
Navistar, with a market capitalization of $2.3 billion, would be a relatively inexpensive option should Volkswagen AG -- as long rumored -- decides to buy its way into the U.S. truck market. The company could also be of interest to global players like Daimler AG and Volvo Group AB or to domestic rival Paccar (PACC) .
A year ago any talk of a deal involving Navistar would have been a non-starter given the company's significant challenges. But Navistar today is at a crossroads, off its lows but with significant challenges on the road ahead. Don't be surprised if investors start looking for a shortcut.